BOK says 'excess liquidity' concerns stem from liquid asset-driven 'statistical illusion'
Published: 18 Dec. 2025, 11:58
Updated: 12 Feb. 2026, 17:58
Audio report: written by reporters, read by AI
![The Bank of Korea's main building in Jung District, central Seoul, on Aug. 12 [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/02/12/b2127180-cf6f-444d-993b-5924b03e9a58.jpg)
The Bank of Korea's main building in Jung District, central Seoul, on Aug. 12 [YONHAP]
With concerns growing over “excess liquidity” — that too much money in circulation is fueling asset prices and the weakening exchange rate — the Bank of Korea (BOK) said the perception is a “statistical illusion” and moved to clarify the data.
The central bank said it will publish an additional indicator next year that excludes liquid assets as exchange-traded funds (ETFs) alongside the existing data on "broad money," designated M2.
M2 is a measure of immediately accessible money, combining cash and funds deposited in banks, or M1, with money market funds, liquid assets and time deposits with maturities of less than two years — assets that cannot inherently be used as cash.
M2 averaged 4.47 quadrillion won ($3.04 trillion) in October, up 41.1 trillion won, or 0.9 percent, from the previous month, according to the BOK on Tuesday. The on-year growth rate rose slightly to 8.7 percent from 8.5 percent in September.
M2 has risen for seven consecutive months. Of the 8.7 percent on-year increase, 3.3 percentage points came from liquid assets, nearly matching the 3.8 percentage point contribution from cash and deposits. During the month, the total value of liquid assets increased by 31.5 trillion won, while time deposits with maturities under two years rose by 9.4 trillion won.
The BOK said the increase was driven by a surge in equity-type liquid assets amid a stock market rally, as well as banks stepping up deposit intake to manage their liquidity coverage ratio.
The central bank also sought to address the recent “excess liquidity” controversy directly, through an online post. The post said the current M2 growth rate in the 8 percent range only slightly exceeds the long-term average of 7.4 percent and is in line with historical averages seen during past easing cycles. It also said the M2-to-nominal GDP ratio remains stable in the long term.
![A person goes to a currency exchange shop in Myeongdong, Jung District, central Seoul on Nov. 11. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2026/02/12/51f9870e-f486-4eff-a83d-44ecfa5d3f0a.jpg)
A person goes to a currency exchange shop in Myeongdong, Jung District, central Seoul on Nov. 11. [NEWS1]
The BOK pointed to changes in the composition of monetary indicators as a key reason M2 appears inflated. Excluding liquid assets in line with International Monetary Fund recommendations, October’s growth rate falls to 5.4 percent — comparable to the 4.5 percent of the United States. From just before the Covid-19 pandemic in March 2020, cumulative M2 growth stands at 49.8 percent in Korea and 43.7 percent in the United States.
Against this backdrop, the BOK said it will begin publishing M2 data excluding liquid assets alongside the existing figures. The dual disclosure will be applied on a temporary basis for one year, starting with the November 2025 data, to be released in January 2026.
While liquidity expansions typically fuel housing prices and exchange rates, the BOK said concerns linking recent trends to liquidity growth amount to “an excessive interpretation.” It said rising home prices in the Seoul metropolitan area are mainly driven by supply shortages, a preference for ownership of one high-value residential property and expectations of price gains in specific areas, leading to concentration in demand.
The depreciation of the won against the dollar, it added, has been more strongly influenced by supply-demand factors such as increased overseas liquid asset investments by residents as well as exporters’ tendency to hold foreign currency.
![Screens show the Kospi, the foreign exchange rate between U.S. dollar and Korean won and the Kosdaq at a trading room of Hana Bank in central Seoul on Sept. 15. [AP/YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2026/02/12/87cd417c-6b11-4fa4-b8e4-8d3d2d9814f5.jpg)
Screens show the Kospi, the foreign exchange rate between U.S. dollar and Korean won and the Kosdaq at a trading room of Hana Bank in central Seoul on Sept. 15. [AP/YONHAP]
In response to criticism that an expansionary fiscal policy has boosted the money supply, the BOK said the underlying trend remains an inflow of funds to households and businesses, while acknowledging that government measures such as supplementary budgets have had some impact. It added that, in theory, money supply increases when banks and other monetary institutions purchase government bonds.
“Focusing too narrowly on liquidity in a policy framework centered on interest rates could ‘blur the essence’ of recent asset price and exchange rate movements,” said Park Sung-jin, head of the BOK’s market operations team.
“The move does not mean the central bank will stop monitoring M2,” said Lee Hwa-yeon, a policy analysis team leader at the BOK. “It means we will take a comprehensive view, looking at a range of indicators such as the financial conditions index, the neutral interest rate, price variables and credit conditions.”
Some market experts, however, see the issue differently.
“The BOK’s explanation of the exchange rate has merit, but it is difficult to deny the impact of liquidity on housing prices,” said Park Hyung-jung, an economist at Woori Bank. “As the policy rate was lowered from late last year through the first half of this year, Seoul home prices and household debt increased, and that at least served as a trigger.”
Between the onset of the Covid-19 pandemic in 2020 and the third quarter of 2024, the money supply expanded by about 1.6 quadrillion won, while the nominal GDP rose by just 148 trillion won. During the same period, market capitalization on the Kospi increased by 1.3 quadrillion won. “Liquidity appears to have had a greater effect on asset price increases than on real economic growth,” Park added.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY PARK YU-MI [[email protected]]
with the Korea JoongAng Daily
To write comments, please log in to one of the accounts.
Standards Board Policy (0/250자)